A Quarter of a Century of Deal Making Lessons – An Investment Banker’s Perspective

5 Qualities Entrepreneurs Need for a Successful Business Sale Transactions

The author, Michael Carter, is the founding Partner of Carter Morse & Mathias, an investment bank that represents middle market privately held companies when they are contemplating the sale of a business or raising capital. In this series of articles the author highlights the intangibles that make for a successful transaction and explains why these are critical to making a once in a lifetime transaction a success. Laying out several principles that may be counter-intuitive to most entrepreneurs, the author explores differences between the skills required in the day-to-day operation of running a business and those principles that are important when a company attempts to achieve a critical financing or close a strategic sale.

This is part 1 of a 3 part series highlighting management and decision making principles that can lead to great success or dismal business failure when not managed correctly. In each part of the series the author addresses key business leadership characteristics and shares insights into making sure these characteristics do not stand in the way of success.

Part I – 5 Deal Making Lessons Learned

“Sometimes Entrepreneur’s Success Instincts Need A Second Look”

I was recently asked, “What makes a great deal maker?” In my experience there is no one magical quality but several qualities which, when well managed and executed, contribute to success. In this series I summarize the most important lessons I have learned while representing entrepreneurs for over 25 years, who are embarking on one of the two most important strategic transactions of their entrepreneurial lives; selling their company or raising capital.

Each of these transactions involves complex business, financial and strategic decisions as well as difficult personal emotions and interactions. Entrepreneurial characteristics and instincts that served them well when building a business often fail to play out as intended when selling a business. While working closely with business owners I have had the opportunity to evaluate some classic entrepreneurial characteristics and instincts and this is what I have learned:

The first 5 Qualities of Successful Business Sales Transactions

1.  Integrity of Character – “It takes 20 years to build a reputation and five minutes to ruin it”, Warren Buffett

Once trust is broken, the building blocks of a transaction are severely undermined. Many business owners are wired to be optimistic and always selling their vision. During business transactions it is critically important not to skew the truth, exaggerate or omit a key fact. When entrepreneurs overstate their company’s capabilities, they are sowing the seeds of an unhappy ending. During all business transactions a seller’s instinct for optimism and salesmanship usually trumps reality. Investors and buyers gain confidence in entrepreneurs who are confident enough to discuss their own concerns and challenges. Your character comes through; so don’t try to say what you think they want to hear.

2.  Check your ego at the door – “Do you wish men to speak well of you? Then never speak well of yourself.” – Pascal

While outstanding entrepreneurial businesses are often the outgrowth of one brilliant individual (most commonly product or technology focused) with a passion to fill a perceived market need, the enlightened ones have evolved such that their company ultimately takes precedence over their ego. This is often easier said than done. No entrepreneur wants to fall into the trap of showcasing their tremendous personal value at the expense of their company’s value.

The challenge for maximizing the value of a business during a sale is to highlight the value of the company, the brand and the management team, while institutionalizing the founder’s drive and passion. Too much emphasis placed on one person can adversely impact the value of the business, as investors are often concerned about the concentration of knowledge and relationships in one person.

Investors want to buy your great company not one superstar.

3.  Murphy was an optimist – “Unless you’re running scared all the time, you’re gone”, Bill Gates

Murphy’s Law, says if anything can go wrong it will go wrong. M&A transactions and capital raises are always complex, with many moving parts involving thousands of hours of emails, phone calls, meetings and analyses, inviting unexpected twists and turns. In today’s environment there is much that can go wrong. Quality work is a given, but quality control may be forgotten. Careful control over the process of getting a transaction over the goal line can minimize Murphy’s Law. Business owners don’t often think of quality control in deal making as they are focused on the goal and don’t fully appreciate it is never a straight line to a closing. Sometimes the best-laid plans crash.

Do not skip the process of assessing risk and developing a contingent  “Plan B”.